Suspect macroeconomic ideas

7 November, 2015 at 15:01 | Posted in Economics | 2 Comments

The advocates of free markets in all their versions say that crises are rare events, though they have been happening with increasing frequency as we change the rules to reflect beliefs in perfect markets. I would argue that economists, like doctors, have much to learn from pathology.religion-and-scienceWe see more clearly in these unusual events how the economy really functions. In the aftermath of the Great Depression, a peculiar doctrine came to be accepted, the so-called “neoclassical synthesis.” It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief. The idea was always suspect.

Joseph Stiglitz

Strange and suspect idea indeed — as is the ‘New Keynesian’ idea that although the economy does not automatically succeed in keeping the economy at a full employment equilibrium, we do not — unless we’re at the Zero Lower Bound — need fiscal policy as long as monetary policy manage to set ‘the’ rate of interest at a level compatible with the targeted inflation.

As Stiglitz has it — this is nothing but “a religious belief.”

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  1. As Stiglitz has it — this is nothing but “a religious belief.” Yet he still seems to cling to the NAIRU and the ‘Holy Power of Taxation’ like a drowning sailor. Similarly religious beliefs.

  2. In regard to your statement: “The thought was always suspect” I think it’s nothing suspicious if you look at who are the power groups that support this concept and associated ideologies. Not only it does not decrease support for those who defend the logic of the free market. In addition, such power groups are extending their financial support for neoclassical economists to investigate and speak out on issues that the free market generates, as inequality and the environment. That way they can “manage and control” intellectual production so that it is not diverted to a criticism of the establishment. It is not new: monetarism was not born in a cabbage and only crudely expressed in the words of their priests; while frightened by the danger with inflation, unemployment and the distribution ceased to be an important issue and classrooms were won by teachers trained in this “central” current and which are selected by juries that are part of this mainstream. In our scientific academies of economics and much of Universities (Argentina) this is the most usual.


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